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Clinton budget is first of surpluse battle salvoes; President focuses on Social Security, GOP on 10% tax cut; 'Big government reborn'

THE BALTIMORE SUN

WASHINGTON -- President Clinton unveiled a $1.77 trillion federal budget for 2000 yesterday, proposing to usher in the new millennium with swelling budget surpluses, scores of new federal programs, and a plan to shore up Social Security and Medicare that could dash Republican hopes for a major tax cut.

Clinton's budget opens a new era in U.S. politics. The battle over federal deficits is over, but the fight over burgeoning surpluses could be just as heated.

"We have a rare opportunity that comes along once in a blue moon to any group of Americans," the president said, urging Congress to use the coming surpluses to save programs for the elderly and shrink the federal debt.

The war of words began almost immediately, as Clinton decried the "profligacy" of the Ronald Reagan era and Republican leaders promised to push forward with an across-the-board tax cut of at least 10 percent.

"Big government has been reborn and reinvented in this budget," complained Senate Budget Committee Chairman Pete V. Domenici, a New Mexico Republican.

Treasury Secretary Robert E. Rubin and White House aides replied that Republicans should not be taking shots at the president's plan until they have forwarded their proposal for keeping Social Security and Medicare solvent when the baby boom generation begins to retire. Rubin promised that any broad tax cut that does not ensure Social Security's future would be vetoed.

"We've put forward a comprehensive proposal," said Jacob J. Lew, director of the White House Office of Management and Budget. "We look forward to a comprehensive response."

Both sides tried to take credit for the nation's remarkable economy, with Clinton pointing to his politically painful budget plan of 1993 and congressional Republicans citing their balanced budget and tax-cut deals of 1997.

Both sides also tried to claim the political high ground. The White House said its plan to save most of the budget surpluses for Social Security and Medicare would dramatically decrease the federal debt, protect popular programs for the elderly for decades to come, and ensure prosperity for the next generation of Americans.

"With this budget, our fiscal house is in order, our spirit strong, and our resources prepare us to meet the challenges of the next century," Clinton said in his budget message, hailing "a new era of opportunity" and "unprecedented prosperity."

Republicans offer tax cut

Republicans said only a major tax cut can ensure that expanding budget surpluses over the next decade will not be spent on government programs.

"The president's budget ambitiously spends almost every cent of the surplus not set aside for Social Security reform on more Washington-based programs. Clearly, the president sees the surplus as an opportunity to expand the power, the influence and the size of the federal government," said House Speaker Dennis Hastert, an Illinois Republican.

House Budget Committee Chairman John R. Kasich, an Ohio Republican, plans to unveil his proposal today for a 10 percent cut in income tax rates, a plan that would reduce taxes by $743 billion over 10 years.

Clinton spending initiatives

The president's budget would increase spending by 2.3 percent for the fiscal year that begins Oct. 1. With that modest increase in spending, the budget would produce a record $117 billion surplus and federal spending would remain around 19.7 percent of the nation's economy, the lowest level since 1974.

Clinton's budget would create new spending initiatives in areas such as child care, long-term health care, school construction and education technology. Other proposals are aimed at stemming suburban sprawl, combating global warming and expanding investment in depressed urban areas.

Defense would eat up 15 percent of the federal budget, with 22 percent going to Social Security, 11 percent to Medicare, 6 percent to Medicaid, and 12 percent to other entitlement programs such as welfare and veterans' benefits.

Some 17 percent would go to nondefense programs in agriculture, housing, education, energy and transportation, and 11 percent would be swallowed by interest on the $3.7 trillion debt. The remaining 6 percent would be surplus tax receipts, set aside to begin repaying the debt and bolstering the Social Security trust fund.

Paying off the debt

Indeed, the centerpiece of the budget is really debt repayment. Funds that Clinton says will be saved for Social Security would actually go toward paying off outstanding U.S. Treasury bonds.

Under Clinton's budget plan, 62 percent of the surplus would be roped off to bolster funding for Social Security and 15 percent would shore up Medicare. But in effect, the president would be fencing off up to 77 percent for debt reduction. In six years, under White House projections, the national debt would be a smaller percentage of the economy than it was when Reagan took office in 1981. By 2014, it would be 7.1 percent of the nation's economy, the lowest level since 1917.

That would position the country to swallow the expense of health care and pension funding once the baby boom begins to retire in earnest next century, said Deputy Treasury Secretary Lawrence Summers.

Biggest battle

In some sense, the president has already won the biggest battle. Senate and House GOP leaders promised yesterday to go along with Clinton's pledge to reserve 62 percent of the surplus for Social Security, or about $2.8 trillion. The real battle will come over the remainder, especially the portion Clinton hopes to use to establish individual retirement savings accounts and the amount he would spend on new military, education and research programs.

The president will have to battle an intransigent GOP leadership for most of the new spending programs he has proposed. A House Ways and Means Committee analysis found 81 separate fee increases and tax loophole closures in Clinton's budget that would raise around $82 billion over the next five years, partially offset by $36.2 billion in targeted tax cuts.

Of the 81 proposed revenue raisers, 35 were floated last year, and Congress passed none of them.

Cigarette tax

By far the largest increase would be a 55-cent-per-pack boost in the cigarette tax that would raise an estimated $34.5 billion through 2004 to offset the cost of treating smoking-related illnesses among veterans, federal employees and Native Americans. The proposal is half the size of the $1.10-per-pack tax proposed last year, but GOP leaders immediately pledged to block it. That would leave an $8 billion hole in Clinton's budget for 2000 alone.

The president also envisions snaring nearly $20 billion from the state tobacco settlements over the next five years, another proposal with an uncertain future, Domenici said.

'Lame-duck budget'

"You could label the president's budget the first of what will be several lame-duck budgets," Kasich declared dismissively, comparing Clinton to Santa Claus. "It doesn't take us in a direction that is all that constructive."

Ironically, the poisonous political atmosphere in Washington could work in Clinton's favor this year. Gridlock would kill many of his spending proposals, but if the president blocks a Republican tax cut and the GOP stops his proposals for the surplus, excess tax receipts would automatically go toward debt reduction, Clinton's primary aim anyway.

Pub Date: 2/02/99

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